In the stock valuation formula "good news" affects both the numerator and denominator. Conventional wisdom on Wall Street is that the effect on the __________ is __________ the effect on the __________.
A) numerator; less than; denominator
B) numerator; greater than; denominator
C) numerator; the same as; denominator
D) None of the above.

Question

Quizplus · Accepted Answer

Good news typically increases future earnings expectations (numerator) more significantly than it increases the discount rate (denominator), leading to a net positive effect on stock valuation.

In the Stock Valuation Formula "Good News" Affects Both the Numerator